As council eyes fast cash from parking privatization, other cities show potential risks

Photo by Joe Sonka

Scrambling to fill a $35 million budget shortfall in the next fiscal year, members of Louisville Metro Council are now considering the option of privatizing the city’s parking assets estimated to be worth $170 million, which has the potential to bring in a large amount of cash quickly and make tax increases unnecessary.

If Louisville does move toward parking privatization, it would not be alone among peer cities in the region over the past decade to consider such a plan to fill a short-term budget hole.

However, cities like Indianapolis and Chicago may actually serve as a warning of the potential long-term risks for such a move, while Cincinnati officials now express relief that they rejected a privatization plan in 2013.

The option of a public-private partnership (P3) with Louisville’s parking assets has been brought to the fore over the past week by Councilman David Yates, D-25, the chair of the economic development committee and the creator of the new ad hoc committee on efficiencies to find areas of the city budget to cut in the face of the huge shortfall.

At the economic development committee meeting last Tuesday, Yates invited the Chicago parking asset investor and adviser Rick West to speak about Louisville’s asset value and options for privatization.

According to West, Louisville’s total assets — including parking garages, meters and surface lots — have a potential value of roughly $170 million.

If Louisville does opt for a private partner, such a deal would have a wide variety of possibilities, in terms of its length and revenue structure. West noted that cities have signed agreements that have lasted anywhere from 30 to 75 years, and they could opt anywhere from the largest payment possible all upfront, to a smaller initial payment with shared revenue for many years.

For a city staring at a $35 million budget shortfall next year and a projected $65 million shortfall within four years — which could either be solved through major cuts and layoffs or a large increase to the tax rate on insurance premiums — anything approaching even half the distance to that $170 million figure sounds tantalizing.

Easy Come, Easy Go

Over the past decade, some cities facing a budget crisis found such quick cash too good to pass up but didn’t quite get what they expected.

The face of “What Not To Do” when it comes to parking privatization no doubt belongs to Chicago, which in 2008 made a deal that currently lives in political infamy.

In Chicago’s deal, it sold all of the city’s parking meters to a foreign company in a 75-year deal, landing a $1.2 billion lump sum to go toward a massive budget shortfall related to rising public pension obligations.

However, the city quickly burned through that money, while the company more than doubled parking rates and kept 100 percent of that revenue. The company raked in $134 million in 2017 alone and was already on pace to recoup its entire $1.2 billion investment by 2021 — with 62 years left to go in the contract.

For the cherry on top, Chicago’s contract contained no clause to back out of the deal.

Indianapolis also entered into a long-term parking P3 deal in 2010 that was dramatically different from Chicago, but city leaders are expressing disappointment with its performance weighing the possibility of using their clause to back out of the deal next year, according to the Indianapolis Business Journal.

In its 50-year deal with a consortium of companies for its parking meters, Indianapolis received only $20 million upfront but entered into a long-term agreement to share in revenue from those meters.

While this deal was projected to net anywhere from $363 million to $620 million in revenue for the city over the term of the contract, it has significantly underperformed. Through 2017, the city has received just shy of $22 million, which is 36 percent of the total revenue from meters. While the city is 16 percent of the way through the term of the contract, it has received only 6 percent of the lowest $363 million estimate, which could end up at only $200 million.

However, the contract of Indianapolis has a clause to back out after 10 years, and city leaders are giving serious consideration to doing so next year, which could cost the city nearly $20 million. However, other city leaders have defended the deal, citing the significant technological improvements the company brought to the city’s antiquated meters and its ability to dramatically increase total revenue over that time.

Facing a $34 budget million deficit and the possibility of hundreds of layoffs in 2013, Cincinnati appeared ready to go down the same route as Indianapolis but ultimately sided against it with the election of a new mayor who campaigned against parking privatization.

Under the proposed deal, Cincinnati would have leased its entire parking system to a company for 30 years, receiving $85 million upfront and roughly $3 million each year through a revenue-sharing agreement.

According to a Cincinnati Enquirer story in 2017, city leaders were unanimously grateful that they turned down the fast cash of the deal — even those who voted and campaigned for it — noting their ability to improve parking infrastructure and keep all of the increased revenue.

Nashville faced a situation last year that was nearly identical to that facing Cincinnati back in 2013 and Louisville right now, staring at a $34 million revenue shortfall. Mayor David Briley responded by proposing a plan to privatize the city’s meters, in which Nashville would receive a $15 million payment in each of the first two years, in addition to revenue sharing going forward.

Nashville’s parking plan has not yet been officially approved.

Devil in the Details

In the economic development committee meeting last Tuesday discussing Louisville’s parking P3 options, the mayor’s budget director Daniel Frockt also fielded questions from the council members, suggesting that such a deal might not be as simple as depositing a $170 million check.

Councilman Markus Winkler, D-17, the sponsor of the proposed ordinance to raise insurance premium taxes that will come up for a final vote on Thursday, noted that $170 million “sounds amazing in a time of crisis,” but asked Frockt about the debt accumulated by the Parking Authority of River City (PARC).

Frockt answered that PARC’s debt was roughly $90 million, so in the case of a hypothetical $170 million lump sum payment, the total figure would actually be more like $170 million minus $90 million.

Frockt told Insider Louisville this week that PARC’s debt total is actually even higher than he originally thought, as it is currently over $100 million.

Councilman Brent Ackerson, D-26, who is opposed to the ordinance increasing taxes and wants to instead find cuts, asked Frockt how much revenue PARC provides the city each year. Frockt answered that the city gets roughly $1.2 million from parking fines, with normal parking rates going toward paying PARC’s operations and bond debt.

Frockt also made a point of adding that PARC’s revenue should not be viewed in the vacuum of just revenue, as the city uses parking as part of its economic development strategy to incentivize businesses, using the example of the garage for the Omni Hotel.

Responding to Insider’s request for more details on the city’s revenue and debt related to parking, Mayor Greg Fischer’s spokeswoman Jean Porter sent a one-page memo outlining issues related to “PARC and Privatization,” repeating and expanding on some of the points made by Frockt in committee last week. Porter said the mayor’s office worked on the memo with the Office of Budget and Management and Louisville Forward, “in response to council questions.”

Referring to parking as “a crucial component of economic development work in business attraction,” the memo stated that parking privatization could hurt the city’s economy, as several downtown projects like the Omni “would not have occurred without PARC.”

“Turning over this asset to a private operator, and limiting PARC’s flexibility, could seriously constrain Metro’s ability to attract new companies to Louisville, or may require Metro Council to approve other forms of incentives to help a project build its own garage, such as tax increment financing, which would have an increased hard dollar cost out of the general fund.”

The memo of the mayor’s office also stated that the structure of PARC’s bond debt would complicate any sale to a private partner, as four of the bonds are tax-exempt and all have restrictions on how early they can be paid off.

Unwinding such bond financing and PARC’s consolidated parking system “would neither be quick nor easy and there would be costs associated with it,” with private ownership jeopardizing the tax-exempt nature of the revenue bond, according to the memo. Additionally, PARC would still have to pay up to $18.4 million in principal on outstanding debt, despite the potential of losing a revenue stream.

The memo goes on to cite the underperformance of revenue for Indianapolis under its parking P3, stating that the city’s initial success was due to efficiencies implemented by the private operator, all of which “have already been implemented by PARC.” Such efficiencies include Go 502 implemented last year, allowing customers to pay for parking with their smartphones, along with credit cards.

Despite the skepticism from the Fischer administration, Yates has called a parking privatization deal “a very good possibility” to deal with the city’s current budget crunch, especially considering the alternatives of raising taxes or cutting government services.

Steve Haag, the director of Metro Council’s Republican caucus, told Insider their members are open to and “definitely intrigued” by the idea of privatizing parking, but still need more information.

One member who appeared to tweet out support for such a plan in the past week was Councilman Anthony Piagentini, R-19, who stated that privatizing the $170 million parking assets “could dramatically impact our budget problems without negative impacts to citizens.” He added that “Nashville and Indy have already done this,” without mentioning any of Indianapolis’ hiccups and the possibility that it may back out of the agreement next year.

In response to a Louisville resident telling him that this was a short-sided option that eliminated reliable revenue and could lead to parking rates dramatically increasing, Piagentini replied that the city “receives no revenue” from PARC and rates under a private company “would reflect what the market would bear (governments consistently under charge for political reasons).”

“Bottom line is we need to be activating all options and we are receiving almost nothing for $170M asset,” tweeted Piagentini, who also stated that privatizing garbage pickup should be on the table of potential options.

Another parking expert from Chicago was scheduled to testify on Monday before the ad hoc committee on efficiencies, but the meeting was canceled after she was unable to make it to Louisville. No meeting of that committee is scheduled before the council meeting on Thursday, where members will take up the ordinance to raise the tax rate on most insurance premiums to 9.5 percent next year.

This post has been updated with an additional comment from Frockt on PARC’s total debt.